Global marketplace

Global technology giants are defending higher prices by pointing out the cost of operating in Australia.

Private hearing

Apple has avoided making its views public and has been granted a private hearing, to be held behind closed doors in Canberra today.

Not convinced

Consumer groups say the price differences are not fully explained by labour, marketing and research costs.

Technology and entertainment industry giants have blamed the high cost of doing business in Australia for gadgets and software being more expensive here than overseas.

Microsoft and an industry lobby group representing Hollywood’s biggest names have all provided submissions to a parliamentary inquiry into why Australians pay more for technology.

The Australian Financial Review can also reveal that the world’s richest company, Apple, has decided against providing a public submission by deadline, and has instead been granted a closed-door hearing with federal politicians in Canberra today.

A US representative is set to argue the company’s case with committee members but no media will be allowed and no Hansard notes will be recorded.

The fightback by industry comes after months of intense pressure from consumer groups and politicians. While some companies previously blamed the price differences on a weak Australian dollar, it has been all but equal to the US dollar since late 2010.

Microsoft’s three-page submission to parliament hit out at the inquiry’s choice to compare the price of technology products in different countries. “Any such comparisons are of limited use, as prices differ from country to country and across channels due to a range of factors,” it said.

These additional factors included transport and distribution costs and “the relatively high cost of labour and rent [and] the higher costs of marketing, training and advertising.”

The US-based firm also said the cost of doing research and development in Australia was expensive, resulting in customers being hit with more expensive fees and charges.

“Microsoft seeks a rate of return on its investment in the Australian ICT market,” it said. “The cost of doing business in Australia has a direct impact on prices recommended by Microsoft and ultimately charged to customers.”

The comments were backed up by Australian Home Entertainment Distributors Association chief executive Simon Bush, who represents Walt Disney, Twentieth Century Fox, Universal Sony Pictures and several other studios.

He said the high cost of labour was a major factor that impacted on operations along with Australia’s large physical size and relatively small population. “The minimum hourly adult wage in the UK is $9.68, in the US is $7.37 and in Australia is $16.51,” he said. “We hire a lot of localised distribution, sales and marketing teams and my members are huge employers in Australia.

“Each would have hundreds of people and they then hire marketing teams and PR teams that flow through the local economy.”

Mr Bush said local regulations such as classification labelling meant specialised material needed to be produced for the Australian market, further increasing the cost of producing DVDs and other media.

“I think technology is an easy target and I think this inquiry is a bit of populism,” he said.

But consumer advocate group Choice’s head of campaigns, Matt Levey, dismissed the arguments and said the profit margins earned by the firms showed locals were being gouged.

According to their latest accounts filed with ASIC, Apple made a profit of $95.5 million from a total revenue of $4.87 billion while Microsoft earned $467 million revenue and paid $19 million in tax, or about 4 per cent, in the 2011 financial year.

“Some of those factors like wages could go some way to explaining price disparities but they don’t go any way towards accounting for the very substantial differentials faced by Australian consumers,” he said.

“For example some distribution channels for these products have no overheads because they’re downloaded from an international server [over the internet].

“We’re talking about increasingly essential items for business and household products here . . . so having disproportionately high prices challenges productivity.”

Labor MP Ed Husic has spearheaded the inquiry but could not comment on Apple due to rules around parliamentary privilege. He said the submissions by the firms like Microsoft were a positive sign that the inquiry was working.

“A lot of its research and development work is done overseas so it’ll be interesting to see how much their local work is a proportion of its global effort,” he said. “But all this gives companies a chance to educate the public on the type of issues they’re considering in setting prices.”

Coalition MP and committee member Jane Prentice said both she and Mr Husic wanted more information on the issue.

“In this great world of no boundaries and cloud computing why do we still have these territorial cost issues?” she said. “I’m happy for them to say ‘because we can’ if that’s their answer but we need to know.”